Norway’s inflation likely to have slowed in May

Norway’s inflation figure for the month of May, to be released on Friday, is likely to have slowed when compared with the last month's print. Lately, the food prices have been fluctuating. Sharp reduction in prices of certain items before Christmas and Easter signified that CPI prices on food had declined almost three percent on a sequential basis in December as well as in March.

“We forecast core inflation at 2.9 percent down from 3.3 percent in April and well below consensus at 3.1 percent and Norges Bank at 3.2 percent,” noted Nordea Bank.

There were sharp reductions in certain items on National Day on May 17. It is uncertain as to how this impacted the CPI prices; however, it is expected that food prices dropped two percent on sequential basis in May, said Nordea Bank in a research report.

Prices had risen in May 2015 by 1.5 percent m/m. This is sufficient to pull down core inflation by 0.5 percent percentage points on a year-on-year basis, according to Nordea Bank.

Meanwhile, air fares are also expected to have moderated on a year-on-year basis as they rose strongly in May 2015. There is uncertainty regarding imported consumer goods as well. The indications of a deceleration in growth of imported consumer goods’ prices are likely to be seen later this year.

If the projections come true and temporary price reductions slowdown core inflation below the central bank’s forecast, it will not influence Norges Bank’s opinion on interest rates and inflation, according to Nordea Bank. The Norwegian central bank had mentioned earlier that monetary policy is “now responding somewhat less than usual to news that pushes down on the interest rate path”.

Still, there is a possibility of the NOK to depreciate slightly and forward rates to decline, added Nordea Bank.